Well That Seems Fair
There is a certain sense in which this article is the intellectual equivalent of catching fish in a barrel. When liberals like me agree with conservative think tanks like the Heritage Foundation and the Cato Institute that people should pay more attention to government assistance to large corporations, my first inclination is to say that’s the ballgame and go home. But then again, some progressives argue that some kinds of corporate welfare aren’t so bad. And the Republican Party has determined that the best way to stimulate the economy in the wake of the September 11 disaster is to give enormous tax breaks to large corporations. So maybe the issue deserves a little more attention after all.
One argument against much of the criticism of ‘corporate welfare’ is that the rhetoric involved obscures the idea that government might play some kind of positive role in social development — an argument that will obviously strike a stronger chord with progressives than with conservatives or libertarians. Frank Laird of The American Prospect argues, for example, that “the rhetoric of corporate welfare overlooks the legitimate basis of public support of private industry. Government has a basic interest in advancing research and development that the market will not produce spontaneously and in constructing and maintaining such tangible public goods as highways.”
Conservatives in the 70s and 80s succeeded in making the word ‘welfare’ a political pariah, conjuring images of wasteful government spending on lazy individuals — and now ‘corporate welfare’ threatens to tar public spending on, say, pharmaceutical and technological research with the same brush, even if such spending results in useful drugs or a new global communications medium. I doubt, however, that the current Republican stimulus plan is what Laird has in mind.
The House recently passed a stimulus package that is estimated to cost $100 billion dollars. 70 percent of that package will benefit corporations, through additional tax breaks and elimination of the corporate alternative minimum tax. It’s worth noting here that according to statistics compiled by the Bush Administration’s Office of Management and Budget and included in the citizens’ guide to his budget for Fiscal Year 2002, only 10 percent of the federal government’s receipts came from corporate income taxes. 49 percent came from individual income taxes, with additional monies from payroll taxes and social insurance payments. One wonders how much additional stimulation corporations need, and whether this package passes even a basic fairness test. But it’s even more telling to look at the logic behind the plan.
The hue and cry for an economic stimulus plan comes, at least in part, from a rise in unemployment — 7 million Americans are currently out of work, and over 4 million can’t find full time jobs. This contributes to a lack of consumer buying power, which is always a bad thing but especially so with Christmas on the way. If people aren’t buying things, businesses have fewer need of employees to make or sell those things, which means more lost jobs, until something happens to kick-start demand again and break the cycle. This was, of course, the motivation behind President Bush’s $600-per-family tax relief/rebate (remember that?): giving consumers more money to spend in order to stimulate the economy. At this point, however, the Republicans are taking a different tack, and hoping that businesses will themselves spend their way into a recovery.
Representative Bill Thomas of California, the Republican chairman of the House Ways and Means Committee, says, “The creative range of tax adjustments in this bill will free up money that businesses would otherwise have to send to the I.R.S. so they can channel it back into the economy through salaries, training and investments like equipment instead.”
The current Republican plan (which is described in more detail in a New York Times article) therefore, assumes that businesses will use their tax savings and tax rebates to hire employees and buy equipment. However, part of the problem facing the economy is that there isn’t sufficient demand for the products companies are making now — so what motivation does a company have to hire new workers, rather than just pocket the tax savings and increase its reported earnings? Indeed, one of the provisions of the Republican package increases corporations’ ability to move money to offshore accounts as a tax shelter, which increases incentives to take money out of the US economy.
Washington Post columnist David Broder questions the wisdom of this approach, and suggests instead that the government should further buttress the unemployment insurance system, and provide increased benefits for those out of work. Unlike corporate tax breaks or even the earlier Bush rebates, it’s much less likely that the recipients of such benefits will stow the money in the bank — if you’re out of work, you have bills you need to pay. As Broder says, “You don’t have to have a PhD to know that the extra weekly $25 of benefits will go right into the economy — for groceries or other necessities, without a day’s delay.”
Why, then, is there not a larger outcry against the Republican plan? Could it be that stigma against government-provided assistance to individuals, even in the form of an insurance policy that all workers pay into? It seems odd. In Fiscal Year 2000, the federal government authorized $16.7 billion in grants to states under the Temporary Assistance for Needy Families program, and spent $15.4 billion. Somehow, that’s reckless government spending that wastes taxpayer dollars and reduces self-reliance, but $33.4 billion in farm income stabilization isn’t, and neither is a billion dollars alone to the Ford Motor Company. (Anyone want to argue that the latter is an example of a well-managed company that has contributed nothing to its current financial troubles?) And of course, as Jack Intveld pointed out on our thread on the Social Security surplus, this is all a drop in the bucket compared to the $362 billion we pay in interest on the federal debt — a number which is likely to get larger now that balancing the budget has become a much lower priority. (These figures are based on reports from the White House Office of Management and Budget.)
I bring all this up because it suggests that, as a society, we still need to rethink how we solve economic problems. That there are failures and inefficiencies in the way the government seeks to assist individuals and corporations is not a reason to suggest that it stop helping either. Rather, it points to the need for intelligent and reasoned discourse, and a focus on the best solution for the problem at hand rather than the best solution for a given ideology. In the American Prospect dialogue that defends the principle of corporate welfare, Robert Reich suggests the following test for any proposed government assistance; I think it works as a credible framework for individual social welfare programs as well:
Any proposed special subsidy or tax break flowing to an industry or a business must pass a four-part test. The proposer must show (1) the extent to which the public stands to benefit from the private activity; (2) how much of that alleged benefit depends on the incentive (it may be that businesses would do much of it anyway); (3) that this net benefit exceeds the cost to the public of the proposed subsidy or tax expenditure; and (4) that there are no less costly means of eliciting the same amount of public benefit.
Obviously, there are plenty of devils in the details of these tests — but when you consider that we don’t even seem to have an overall principle to use as a guide in these policy decisions, Reich’s suggestion sure seems like a step in the right direction.
About Dave Thomer
Born and raised in Philadelphia. Studied philosophy at Fordham University in the Bronx, where I made many great friends and met my wonderful wife. We moved back to Philadelphia, where I studied philosophy some more and became a teacher. Online and off, I'm looking for ways that we can be better citizens and build stronger communities.